Why SM partnered with Jollibee, Mang Inasal founders

Posted at 03/29/14 8:36 AM

MANILA, Philippines – Sy-led SM Investments Corp. (SMIC) is looking to expand its footprint in rural areas outside Metro Manila, where the company believes there is high potential for growth.

SMIC consultant Tim Daniels said this is the reason why SM invested in CityMall Commercial Center Inc. (CMCCI), the community mall development arm of Mang Inasal founder Edgar "Injap" Sia II and Jollibee founder Tony Tan Caktiong's joint venture DoubleDragon Properties Corp.

Sia and Caktiong is planning to open 100 CityMall outlets in the next five to six years, most of which are located in Visayas and Mindanao.

“They’re barely in Luzon and mostly in Visayas in Mindanao, which are exactly the under-penetrated regions where we think we’d like to grow. With CityMalls, we think we have outstanding partners with outstanding track records,” Daniels said at COL Financial's Wealth Building Summit on Thursday.

A CityMall outlet is a one-floor strip mall with 5,000 to 10,000 square meters of retail space.

Under the agreement, SM is given first choice for its retail brands.

“At that size, it will contain a small supermarket, a food court, a bunch of retailing—like a hardware store, a pharmacy, a bank branch. With the backing of Jollibee and the backing of SM, you could already see that that mall could be populated with the SM Store, with the outlet of Jollibee, with the bank branch from our own stable, and other retailers we have relationships with. We can populate this mall before it’s even put up, so we know it’s going to be successful,” said Daniels.

Management of the malls, however, will be under CMCCI.

SMIC investor relations chief Cora Guidote said this will give the SM Group an opportunity to roll out its SaveMore brand to untapped areas.

“With the entry of CityMalls as a vehicle for us, we can introduce SaveMore more aggressively in the Visayas and Mindanao. It’s a number game, there is competition but we are willing to fight it out by expanding faster especially in the provinces,” she said.

Most of SM's food retail business is located in Luzon and Metro Manila.

Currently, SM Retail has 193 food stores nationwide: 80 in Metro Manila; 83 in Luzon; 21 in Visayas; and 9 in Mindanao.

These food stores are under the SM Supermarket, SM Hypermarket, SaveMore, and WalterMart brands.

Daniels said the food retailing sector in the Philippines is “underserved,” noting that the Philippines is lagging behind countries like Mexico, Thailand and Indonesia in terms of store network.

He said that in Indonesia, for instance, one food retail player will have 10,000 outlets. In the Philippines, there are only about a thousand outlets for all food retailers combined.

The country’s retail industry as a whole is still in early stages of market development, Daniels added.

“Rural expansion is the biggest opportunity and small formats of high potential is a way to meet that demand,” he said.

Guidote, meanwhile, shared that when SMIC President Harley Sy heard that Double Dragon is looking to enter the community mall business, he immediately approached Sia to discuss the idea of a partnership.

“The reason that we are attracted to CityMalls is because we know our limitations, we are very Luzon-centric at this point. So having that opportunity to grow further and faster in Visayas and Mindanao is a real opportunity for us,” she said.

SMIC signed an investment and shareholders agreement for the acquisition of CMCCI shares equivalent to 34% of its outstanding capital stock.

The remaining 66% is still held by DoubleDragon Properties Corp.

"The partnership of the Sy, Tan and Sia families in CMCCI will bring in to the company the extensive experiences and wisdom of each families in managing, expanding and professionalizing a business entity," CMCCI earlier said.

The first CityMall in Roxas City is expected to be completed by December 2014. []